EUR/USD – Steady As Draghi Discusses Euro

EUR/USD remains under pressure, after remarks by Mario Draghi to a European Parliament monetary committee. The pair continues to trade in the mid-133 range. In economic news, German ZEW Economic Sentiment and Eurozone ZEW Economic Sentiment both surprised the markets with very strong readings. There is only one release from the US today – the NAHB Housing Market Index.

Speaking before the European Parliament’s Economic and Monetary Committee on Monday, ECB head Mario Draghi repeated his concern that the euro’s high exchange rate could affect the ECB’s inflation forecast. Draghi noted that the Eurozone economy is stable but weak, after posting three straight quarters of contraction, and would not recover until later this year. He reiterated that the ECB is not targeting a particular exchange rate, but will continue to closely monitor the euro’s value.

The euro has enjoyed a strong 2013, but the currency hit some turbulence last week, as Eurozone GDP releases for Q4 of 2012 pointed to negative growth. Germany, France and Italy all recorded contraction in their economies, as did the Eurozone economy. There is no good news around the corner, as the ECB has forecast that the Eurozone economy will shrink by 0.3% in 2013. The euro, which enjoyed a tremendous run in January, has reversed course, losing about 300 points in February. If the markets continue to see weak Eurozone numbers, the euro could take it on the chin from the US dollar.

The US released two important indicators on Friday, UoM Consumer Sentiment and the Empire State Manufacturing Index, and both showed solid improvement. Consumer Sentiment rose to 76.3 points, exceeding the estimate of 74.8 points. The Manufacturing Index jumped 10 points, well above the forecast of -2.1 points. The markets were pleased with the data, as both indicators have been struggling recently. If US indicators continue to point upwards, we could see the dollar make inroads against the euro.

In Moscow, the G-20 concluded a two-day meeting on the weekend. The talks were attended by finance ministers and central bank governors, and one of the topics discussed was the recent volatility in exchange rates. The G-20 final statement included a mild comment on the recent volatility in exchange rates. The leaders pledged not to “target our exchange rates for competitive purposes”, and to move more rapidly to market-determined exchange rate systems. The G-20 statement did not make reference to Japan, which has come under fire for monetary policies which have led to free-fall in the value of the Japanese yen. The G-20 also stated that more effort was needed to continue to strengthen the Eurozone, by building a stronger economic and monetary union.

EUR/USD for Tuesday, February 19, 2013

EUR/USD February 19 at 10:50 GMT

1.3336 H: 1.3329 L: 1.3373

EUR/USD Technical

S3

S2

S1

R1

R2

R3

1.3170

1.3240

1.3280

1.3350

1.34

1.3480

The euro continues to drift in the mid-1.33 range. EUR/USD is testing resistance at 1.3350. This is followed by stronger resistance at the 1.34 line. On the downside, the pair is receiving strong support at 1.3250.

The EUR/USD ratio continues to show strong movement towards long positions. Although the pair is currently trading in a narrow range, this could be a signal that the euro will break out and post some gains against the US dollar. The long position component has been getting stronger, and if this trend continues, we could soon see a 50/50 split in the ratio.

EUR/USD continues to trade quietly, as so far, the euro has not reacted to the very strong ZEW consumer sentiment readings earlier on Tuesday. With only one US release scheduled for today, we can expect the pair to continue drifting.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

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Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

Opinions are the authors — not necessarily OANDA’s, its officers or directors. OANDA’s Terms of Use and Privacy Policy apply. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.